October 2015

ASSOCIATION COLUMN: A standout year for the Czech capital market

Jana MichalikovIn 2014, the Czech capital market recorded all-time growth, breaking through the target of CZK 1 trillion (€37 billion). From the point of view of asset management, the total volume of assets entrusted to asset managers in the Czech Republic, or through them to foreign asset managers, reached CZK 1.103 trillion as of December 31, 2014. The assets of collective investment funds grew during 2014 by CZK 51.93 billion, or €1.9 billion, an increase of 18.75%. However, investment of households and institutions in domestic and foreign collective investment funds offered in the Czech Republic have exceeded the pre-crisis levels already in the third quarter of 2014. More than half of the increase in the assets of collective investment funds was due to the inflow of new investments, with every seventh Czech citizen investing in collective investment funds.  Investments in funds in the Czech Republic are therefore slowly approaching the standard of Western European countries, where funds are commonly regarded as a means of preserving the family fortune and building retirement savings. It is the pension reform that played a significant role in increasing the interest of many Czech households to invest in funds. Although the pension reform itself was not very successful, thanks to the opening of discussions on the need for retirement savings a lot of people realised that it is necessary to think about an alternative to reliance on the state pension. From the perspective of fund classification, almost every second investment headed into mixed funds. The low interest rate environment has changed the nature of Czech investors’ preferences from the very conservative money market funds, which dominated for many years, to dynamic portfolios. In 2014, as in previous years, the popularity of bond funds and investments into equity and mixed funds continued to grow. For investors, funds currently represent an alternative to retirement savings. This perception is also linked to the extension of the investment horizon of investors. The fact that funds are perceived as a retirement savings alternative has in turn increased the popularity of so-called Regular Investment Schemes. Regular Investment Schemes are a way of investing into funds that, unlike one-time investments, are based on the regular monthly sending of the money to the management company. The fact that monthly investments start at CZK 500 (€18)contributed to the popularity of this method of investing, allowing a significantly wide range of investors to invest into funds.  However, a tax issue also played its role in extending the investment horizon. In terms of retail investors’ taxation, residents benefit from an exemption on taxation of revenues upon redemption after three years. In 2014, a growing interest in individual asset management was recorded, for example in Qualified Investors Funds. These funds are based on the creation of a structure for a smaller number of investors, who are also interested in participating in the management of these funds more closely than in collective investment funds. Jana Michalíková is executive director atThe Czech Capital Market Association ©2015 funds europe

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